Last update on 2024-06-27

Open Text (OTEX) - Dividend Analysis (Final Score: 4/8)

Open Text (OTEX) dividend analysis reveals a 4/8 final score, showing robust dividend yields but mixed stability over time. Detailed performance review included.

Short Analysis - Dividend Score: 4

We're running Open Text (OTEX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Open Text (OTEX) was evaluated on eight criteria for dividend performance and stability, scoring a 4 out of 8. They've shown a strong dividend yield of 2.3465%, which is higher than the industry average of 0.79%. This suggests a relatively good return for investors. OTEX's average annual dividend growth rate has been higher than 5% over the last 20 years but has been inconsistent. The company's average payout ratio is well below 65%, at about 35.50%, indicating they have retained earnings for growth. OTEX has a good record of covering its dividends with cash flow, reflecting financial health. However, they have not paid dividends for over 25 years and haven't been stable, which could worry some investors. Lastly, the company's stock repurchase activity over the past 20 years has been sporadic, suggesting possible dilution issues.

Insights for Value Investors Seeking Stable Income

Considering the factors analyzed, Open Text (OTEX) seems like a moderately good investment for dividend-focused investors. They have strong dividends, good coverage by cash flow, and a healthy payout ratio. However, the inconsistency in dividend growth and the lack of long-term dividend payment stability are potential concerns. Potential investors should weigh these pros and cons, considering whether stable and long-term payouts are a crucial factor for them. Given its current performance, it might be worth keeping an eye on OTEX for income-focused strategies, but it may not be the best option for those seeking long-term consistent dividends.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield indicates the percentage of a company's share price that is paid out in dividends each year.

Open Text (OTEX) boasts a dividend yield of 2.3465%, significantly higher than the industry average of 0.79%. This favorable yield suggests that Open Text is returning a substantial portion of its earnings to shareholders compared to its peers. Historically, the company did not pay dividends until 2013. However, since then, its dividend yield has shown a generally upward trend, peaking at 3.1309% in 2022. The interplay between a steadily rising dividend per share, which grew from 0.225 in 2013 to 0.986 in 2023, and the robust stock price movement—evident in the ascent from $22.99 in 2013 to $42.02 in 2023—signals sound financial health. These trends suggest that Open Text has efficiently managed to balance rewarding its investors while preserving growth potential, making it an attractive candidate for income-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Discussing the dividend growth rate of Open Text (OTEX) in the last 20 years starting from 2003 and why it is significant for dividend-focused investors to consider.

The Dividend Per Share Ratio (DPSR) data for OTEX from 2003 to 2023 shows some year-to-year volatility. While the DPSR has periods of increase, there are also notable negative values such as in 2015 and 2019. With an average dividend ratio of approximately 9.88%, and specific spikes like the dramatic increase in 2001 and a negative drop in subsequent years, it indicates periods of strong payout followed by drops which could be concerning for investors prioritizing steady dividend growth. On the positive side, apart from the negative years, several positive years show ratios well above 5%, with a particularly strong performance in years like 2014 and 2016 suggesting there is a good potential for high dividend yield during growth spurts. Though the growth rate averagely aligns well above the 5% mark over the 20-year period, the inconsistency can be worrying for long-term stable growth investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain why the criterion of an average payout ratio lower than 65% over the last 20 years is significant for evaluating Open Text's (OTEX) dividends.

The given data shows Open Text (OTEX) has maintained an average payout ratio of 35.50% over the past 20 years, staying well below the 65% threshold. This is a positive trend for dividend sustainability. Despite some fluctuations, with peaks reaching notably higher percentages, especially from 2016 onwards where it hit a high of 177.24% in 2023, the overall average remains optimal. Consistently low payout ratios often indicate that the company retains a substantial portion of earnings for growth, safeguarding dividend payouts even in economic downturns.

Dividends Well Covered by Earnings?

Explain the criterion for Open Text (OTEX) and why it is important to consider

The criterion Evaluate if the dividends are well covered by the earnings by comparing the earning per share (EPS) with the dividend paid out per share (DPS). Simply put, the dividends coverage ratio should be higher than 1 to indicate that the earnings are more than enough to cover the dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

The company's free cash flow data from 2003 to 2023 shows a consistent growth from $36.4 million in 2003 to $655.37 million in 2023, peaking at $888.70 million in 2022. Meanwhile, the dividend payouts commenced in 2013 and have increased steadily from $17.70 million in 2013 to $259.55 million in 2023. The dividend coverage by cash flow ratio has improved from 5.99% in 2013 to 39.60% in 2023, indicating that the company's dividends are well-covered by its cash flow. This positive trend is a good sign, as it reflects the company's ability to generate sufficient cash to support its dividend payments, thereby minimizing the risk of dividend cuts.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Open Text (OTEX) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Dividends Paid for Over 25 Years?

This metric examines whether Open Text (OTEX) has consistently paid dividends for at least 25 years, reflecting long-term financial health and commitment to shareholders.

Open Text (OTEX) has not paid dividends consistently for over 25 years. Dividend payments began only in 2013 with a dividend per share of $0.225. Since then, the company has shown a positive trend in increasing its dividends, reaching $0.986 per share in 2023. While this is a good indicator of its financial health and commitment to returning value to shareholders, it falls short of the 25-year requirement. Therefore, based on this criterion, Open Text does not meet the standard, which may be seen as a drawback for long-term dividend-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Analyzing stock repurchase trends over a long period helps to gauge the company's capital allocation efficiency and shareholder value orientation.

A review of Open Text's share count over the past 20 years shows a relatively consistent increase in the number of shares, which suggests limited repurchase activity. Notably, only in the years 2006, 2016, 2022, and 2023 did the company engage in repurchases to the extent visible in the data. The average number of shares repurchased annually over this period is 2.5576 million. This translates to sporadic buybacks, indicating that Open Text's management might prioritize other forms of capital deployment or reinvestment over regular repurchases. While occasional buybacks could be positive, persistent dilution implies potential weaknesses in providing consistent return value to shareholders.